Ep. 535 The History, Importance and Value of Surety Bond Requirements for Contractors

Marketing & Media Communications Specialist Megan Lockhart sits down with Surety Relationship Executive Anne Wright to cover the history, importance, and modern-day application of surety bonds in construction. Throughout the episode, Anne breaks down how surety protects project owners and benefits contractors alike.

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Director/Host: Megan Lockhart⁠

Guest: Anne Wright⁠

Editor/Producer: ⁠Jadyn Brandt

Music: "Home" by JHS Pedals, “Breaking News Intro” by nem0production

© Copyright 2025. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

Megan Lockhart: You're listening to Rancho Mesa's StudioOne™ podcast, where each week we break down complex insurance and safety topics to help your business thrive. Today, I'm your host, Megan Lockhart, and I'm joined by Anne Wright, Surety Relationship Executive with Rancho Mesa. Now, we're going to talk about the history, importance, and value of surety bond requirements for contractors. Anne welcome to the show.

Anne Wright: Thanks so much for having me.

ML: Before we get too far into the discussion, let's first set the stage with a history lesson. So how did surety begin as a concept and evolve into the risk management tool we have today?

AW: Well, there's actually quite a history of suretyship if you dig in a little bit. And when you consider that the definition of surety is the promise of one party to answer for the debts or obligations of another party, you can understand the three-party concept of surety ship. You've got the party that is providing a good or service and the party that is asking for the good or service and then the guarantor, whomever that might be. So digging into the history books, you can go back to 2750 BC in Mesopotamia and a farmer was guaranteeing that another farmer's crop was going to make it to market. So the guarantor in that case was an individual. So there were personal sureties going way back.

And we fast forward to the 1600s, 1700s as ships were sending goods across the oceans. It was determined that somehow that needed to be guaranteed as well. So there's a record of surety guarantees being provided for that.

In the United States in 1894, the US government starting to spend taxpayer money on construction projects decided that it would be a good idea to have these contractors, these builders, provide some sort of a guarantee that they're going to perform the work and pay the bills. So they pass what was known as the Herd Act of 1894.

We fast-forward to 1935 and we finally get to what most people are somewhat familiar with today. If they do any federal work at all and it's known as the Miller Act. So it is a statutory requirement on federal projects for guarantees to be provided. This is where the surety bonds come in and the insurance companies are the guarantors of the sureties. So it wasn't just that insurance companies were looking for another way to make money, there's a history of why this is required.

ML: Yeah, that's really interesting. Now, are surety bonds required on all construction projects?

AW: It's fair to say that on almost all public projects, you're going to see a requirement for a surety bond because again, it's a guarantee that the taxpayer money is going to be spent appropriately and that the work is going to be completed, and the people that do the work are going to be paid. So on federal projects, there are thresholds roughly of $150,000, and then a lot of public agencies in different states have enacted what we call Little Miller Acts. So they are their own thresholds for surety bond guarantees, and that can vary from agency to agency, but pretty much every public agency across the country is going to require a surety bond.

And when we get to private construction projects, that's really up to the owner of that project and maybe their lender on whether they want their general contractor to provide the bond. There is a cost and that's always a consideration, you know, where they want to spend their money. But we, you know, do see bonds required on the private, just not statutorily required like it is on federal jobs.

ML: Okay. So, when the surety bond is designed to protect the project owner, can you tell me how contractors benefit from the surety process?

AW: Sure. We speak a lot during our conversations and communications with our clients, when we do workshops, here on the podcast about what is required for contractors to be bondable. And while entry -level contractors can start out the bonding process pretty easily with good credit and not have to provide a lot of information, as they grow their business in the bonded realm, there is an expectation that they will be providing regularly updated financial statements that track from period to period; work in progress reports that show what kind of work is going on, how much money the jobs are making, if there's any profit fade, we expect them to have a bank relationship. So there are some tools that the surety company needs that causes a business owner, a construction company here, to be accountable and track the progress of their projects and their success with profitability. So all of this, you know, just helps a contractor be more successful in what they do.

ML: Yeah, right. Well, this was all really great information for contractors to know. Anne if listeners have questions about their surety bond program, what's the best way to get in touch with you?

AW: I could be reached at (619) 486-6570. And my email is awright@ranchomesa.com.

ML: All right, well, Anne, thanks so much for joining me in StudioOne.

AW: I'm always happy to be here, thanks, Megan.

ML: Thanks for tuning in to our latest episode produced by StudioOne. If you enjoyed what you heard, please share this episode and subscribe. For more insights like this, visit us at ranchomesa.com and subscribe to our weekly newsletter.